Sailing home to Blighty was Lancashire, who recently announced that it intended to move to a UK tax residency from its current offshore Bermuda location, as the UK’s Controlled Foreign Companies (CFCs) rules introduce a temporary period of exemption.

Lancashire disclosed that it did not intend to move its place of incorporation to qualify for the temporary exemption, and intends to remain incorporated in Bermuda with a Bermuda-based insurance subsidiary operating out of the Caribbean. With most of its profits originating through its offshore subsidiary, Lancashire sees little threat of a tax bill. Instead, the move will give management greater flexibility, allowing board decisions to be made in London, the city where most of its senior team is based.

Also reported to be considering a move onshore is WPP, the global media communications company, Shire plc, the pharmaceutical company and UBM plc the global marketing company who have all stated that they are actively considering a relocation of corporate tax domiciles to the UK.

Introduced as part of the UK Finance Act 2011, the temporary exemption allows CFCs to benefit from a temporary exemption for up to three years where a group reorganization or acquisition brings the entity within the UK CFC’s rules for the first time.

Further, CFCs that carry on insurance business, including reinsurance, as part of an insurance group, may qualify for exemption from the UK’s regime, provided they meet certain tests. Under the new CFC regime, a CFC insurance company with less than 50 percent of its underwriting business with UK counterparts will be able to qualify for a specific exemption from the CFC regime, provided it also satisfies a capitalisation test.

The capitalisation test will exclude those companies that are excessively capitalised on the basis that such companies would be using their insurance business to swamp what is effectively investment income.

(This article was first published by ThomsonReuters’ Business Law Currents, a leading provider of legal analysis and news on governance, transactions and legal risk. Visit Business Law Currents online at http://currents.westlawbusiness.com. )